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A Tyee Series

The RRSP Mirage

Too many personal plans are coming up way short. The push is on to reinvent Canada's deal with retirees.

By Jim Sutherland and David Beers, 8 Dec 2009, TheTyee.ca

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Few save the RRSP max; yields can't compete with pensions.

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Also in this series:
Finding a New Pension Fix

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Can Canada restitch the fraying financial safety net citizens count on when we stop working?

On Dec. 17, federal and provincial finance ministers will meet in Whitehorse for talks focussing on retirement and pension reform. Hopes are high for an historic moment -- the dawn of "Pensioncare."

Fears are equally high -- that the history will have more to do with squandered opportunities and fumbled balls.

Triggering this confab is the growing consensus that Canada needs to figure out a way to get pensions for people who don't have them, and to shore up the retirement savings for people who aren't accumulating what they expected.

It is now clear that the Registered Retirement Savings Plan (RRSP) system has failed to secure the futures of enough middle class workers and, in the words of one C.D. Howe Institute researcher, has "defrauded" lower income workers.

Proponents of RRSPs stress the tax-sheltered vehicle empowers individuals to take control over their financial futures. But not even one in three people who can take advantage do so. "Almost $500 billion in unused RRSP contribution room is being carried forward," calculates Monica Townson, whose primer on Canada's pension problem for the Tommy Douglas Research Institute was published in October of this year.

If RRSPs aren't getting it done for enough people, what about the private pensions some workers get from employers to top up their payouts from the Canadian Pension Plan (CPP)? If you get such benefits, consider yourself lucky. You belong to a dwindling minority.

While Canada has enjoyed a well-earned reputation for taking care of its elders, "the fundamental fact remains that many workers in their 40s and 50s today -- and especially younger Canadians -- can expect a much less comfortable and secure retirement than those who are now in their 70s and 80s," warns Andrew Jackson, national director of social and economic policy with the Canadian Labour Congress. If policies don't change, say a number of experts interviewed for this series, a growing percentage of the coming generation of retirees will plunge into poverty.



And so the finance ministers are jetting to Whitehorse in the dead of winter. Some believe the timing and location are indicative of the Harper government's muted enthusiasm for a topic that could no longer be avoided. With companies going bankrupt, pension schemes floundering, pension coverage declining and the baby boom cohort approaching retirement age, public concern is undeniable. The provinces of Nova Scotia, Ontario, Alberta and B.C. have all fielded reports on pension reform, and the latter two are on the verge of initiating a regional pension scheme.



Meanwhile, the Canadian Labour Congress, the Canadian Association of Retired Persons and the C.D. Howe Institute have unveiled public pension proposals that would significantly augment the current system. Financial experts ranging from Don Drummond, chief economist for the Bank of Nova Scotia, to David Dennison, president and CEO of the Canada Pension Plan Investment Board, have expressed support. The federal Liberals and NDP are on board. No wonder the CLC's Joel Harden calls it a "Tommy Douglas moment."



In response, Prime Minister Harper has appointed Alberta MP Ted Menzies, parliamentary secretary to Finance Minister Jim Flaherty, to head a pension initiative. The two will meet with their provincial counterparts in Whitehorse to sketch the way forward.

There are some clear and important differences between the various plans to be floated at that meeting, as we will explain in coming installments of this series, "Finding a New Pension Fix." First, though, a closer look at why RRSPs are failing the futures of too many.

The fading RRSP dream

The problem with the current situation does not lie with government pension offerings -- CPP, OAS (Old Age Security) and GIS (Guaranteed Income Supplement) -- which in general have proven to be adequately funded and efficiently run. The problem is that these provide limited income and were never intended to do anything other than augment private pensions and personal savings.



Meanwhile, both of these elements are in decline, if not indeed crisis. Beyond the fear that the current roster of failing pension plans is just the tip of the iceberg, there is the inescapable fact that the iceberg itself is melting: only 23 per cent of private-sector employees are currently enrolled in a plan, the lowest proportion since the 1950s.



The decline of private-sector pension plans isn't a complete accident, either. While public sector unions made pensions a priority, in many cases bargaining away higher wages and other benefits to secure them, other employers and employees accepted the idea that saving for retirement could also be accomplished via the Registered Retirement Savings Plan, which was introduced in 1957.



Somewhat ironically, to the extent that the program has been criticized at all, it has been for being too rich a benefit to the generally middle- and upper-income Canadians who could afford RRSPs and -- at one time, anyway -- embraced them. In the 1990s, with the stock market booming, "Freedom 55" seemed well on its way to replacing "Peace, order and good government" as the national ideal. 



Since then the dream has gradually died. RRSP contributions peaked in 1997, and by 2008 fewer than 30 per cent of those eligible made a contribution. The advent of a lost decade for stock prices perhaps played a part, as did a rise in residential real estate prices, which convinced some people that they were living in their pension plan. But perhaps also, Canadians began to twig to the dirty little secret of the RRSP: try as one might, it is almost impossible to generate a healthy return -- and therefore a secure retirement -- because the system is rigged against individual investors.

Who really profits from RRSPs?



A tantalizing hint of this surfaced in September during a dispute between Ontario's McGuinty government and the financial services industry, which objected to the prospect that sales tax harmonization would apply to mutual fund investments. In response, officials in the McGuinty government threatened to release a document on the negative effects of high management fees.



While some observers objected that the McGuinty government was indulging in threats and blackmail, others wanted to see the smoking-gun document. That has not been released, but there is plenty of research into the shortcomings of mutual funds, especially in the U.S., but also in Canada, which has some of the highest management expense ratios in the world.



A 2007 article in Canadian Investment Review by Rob Bauer, a finance professor at the University of Maastricht, and Keith Ambachtsheer, director of the Rotman International Centre for Pension Management at the University of Toronto, is particularly relevant. The article quantifies the cost to Canadians of mutual fund investments by comparing them to equivalent pension fund investments. 



How yawning is the gap? In the case of Canadian equity funds (historically the most common type of mutual fund purchase), during the period 1996 to 2004 Bauer and Ambachtsheer pegged the difference at 3.8 per cent a year in the case of so-called no-load funds, and even more for funds that charge additional sales fees.



The disparity is somewhat attributable to the investing record of mutual funds (on average somewhat poorer than institutionally managed pension funds), but mostly to their high management fees. Canada's management fees are among the highest in the world. The fees are high partly because mutual funds are generally smaller than pension funds, and therefore have higher overhead, but also to pay for marketing and sales commissions, not to mention the imperative to return a profit.



Over time a difference of that magnitude becomes truly monumental.

A startling disparity in returns


As an example, consider the case of someone who at 25 began investing $2,000 a year in a mutual fund that delivers annual returns of 4 per cent. At 65 he or she will have accrued $197,653.07 -- which would then pay out $12,165.54 a year in a 25-year annuity returning the same 4 per cent.



But if the same $2,000 a year had been invested with a pension fund that returned 8 per cent (an additional 4 per cent a year as indicated by Bauer and Ambachtsheer), the equivalent amount would be $559,562.08 -- generating an annual annuity payout of $48,535.20, assuming a continuing 8 per cent return over the same 25-year term.



Of course, there is no law saying Canadians must invest their RRSPs in mutual funds. It's just that there are few other viable options available to small investors. It is possible to make an end run around high management expenses by investing instead in index funds or ETFs, whose expense ratios can be as low as 0.15 per cent (and are almost always below 1 per cent, compared to the 2 and 3 per cent charged by mutual funds). But these as well produce returns inferior to those of most institutionally managed pension funds. Under some circumstances, such as during the recent market turmoil, they can trail the performance of even mutual funds.



It's also possible to buy simple GICs or to concentrate on bonds. Especially over the past ten years, default strategies along those lines have worked out relatively well. Yet even taking into account the stock losses of the past year and a half, most pension funds, with their enormous pools of capital, diverse investment baskets and ultra-low management ratios, will still have come out ahead of the individual investor.



Making matters worse, there is also the tendency of individual RRSP investors to be (put on the shoe that fits): ignorant, negligent, apathetic, impressionable, excitable and erratic when it comes to investment decisions. As well, investing is something most people are not trained in and would rather not be doing, so they may fail to (again with the shoes) research their options, weigh their risks, read their contracts or even open their statements. Or they may do these things, but badly.

What, then, does the distribution of RRSP winners and losers look like? The average sized RRSP saved by Canadians today is about $60,000. At current interest rates, that amount rolled into an annuity will pay a mere $200 a month.

A 2003 paper published by the C.D. Howe Institute found that about one in five households headed by people nearing retirement had no savings. But author Richard Shillington reserved his greatest pity for those he called "futile savers," the one in three who had less than $100,000 in savings, having put aside on average $23,000. These people would be eligible for GIS, but the sacrifice they'd made to scrape up small RRSPs would yield them almost nothing. "The primary beneficiary of this saving," wrote Shillington, "will be the federal and provincial governments because most of the income from it will be confiscated by income-tested programs and income taxes. To the extent that these households were misled, they have been defrauded."

'Confidence shaken'

At the moment, however, it isn't just the lower earners who are feeling ripped off by the promise they could expect a comfortable, RRSP-cushioned retirement right on schedule. A poll last month found that 37 per cent of Canadians are now planning to delay their retirement, up from 28 per cent just a year ago. "Many Canadians may have had their confidence shaken by events of the past year," concluded Jack Courtney, assistant vice-president of the Winnipeg-based Investors Group, which commissioned the poll by Harris/Decima.

What's going to be on the table in Whitehorse are a number of proposals aimed at restoring that confidence, as well as the security of Canadians suddenly realizing their retirement years may be in jeopardy.

Next: A labour-backed plan to double the CPP pension amount for the coming wave of retirees. [Tyee]

Jim Sutherland writes for the Report on Business and many other publications. David Beers is editor of The Tyee.

24 Comments:

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  • make_up_another...

    2 years ago

    RRSPs Are Bunk

    Recently I've begun to wonder about RRSPs. I'd like to see actual proof of the returns they promise from the 'miracle of compound interest'. I read somewhere that in order to really benefit from compounding interest, you'd have to start investing at age 5 and start with seed money of about 50k in order to even come close to the projections they try to sell you.

    For people making about 50k or less, I'd say that RRSPs are a waste of time, if you build it up too much, your GIS could be affected. The new TFSAs are good, because this is tax sheltered, not tax deferred. The contribution limit is 5k. At my current salary, my RRSP limit would be about 8.5k, but the odds of me actually maxing out are pretty low. So I still say the TFSA is a better bet. Plus, you aren't dinged on the gains, and can withdraw at will.

    I am pretty sure that, like most, I will die in the pretty much the same class as I was born in, a working class stiff. So I'm not worried about retiring in a higher tax bracket.

    The best bet is to try to eliminate as much debt as possible as you near retirement, or at any time.

    When I'm finished paying off my current car, I'm not financing any more. I was lured in by the promise of having a shinier, newer (presumably better) car. All I really got was a depreciating money sucker that I will pay more for than it's worth. I'm gonna go back to driving beaters. I kick myself everytime that car payment goes out.

  • Fair Pensions

    2 years ago

    Excellent article

    I look forward to the rest of the series.

    It seems the financial services providers have shot themselves in the foot with the world's highest MER's.

    Please keep in mind the high cost to all Canadians of the public sector pension plans. There is more money in public sector pensions than Canadians have in private plans. But only 25% of the workers participate in the government employee plans.

    I take exception to the comment that public sector workers have forsaken wages and others benefits in lieu of pensions. This is simply incorrect. They have gold-plated pensions paid for by taxpayers and receive higher compensation as well.

    See the recent CFIB - Wage WAtch Report.

    In Ontario there are over 53,000 public sector workers on the Sunshine List of $100,000 earners. Each one of these workers is entitled to a platinum pension valued in excess of $1 Million.

    An essential part of the Pension Summit must be discussion about controlling the costs of public sector pensions.

    Currently the CPP is designed to replace 25% of working wages. Public sector pensions provide 70% of final wages.

    No public sector workers do not contribute fairly into their pension plans. I contribute as a self employed individual 9.9% into CPP. Most public sector workers do not contribute this much into their plans. The taxpayers picks up the additional contributions estimated at another 20%.

    Bill Tufts
    Fair Pensions For All

  • crankypants

    2 years ago

    RRSP fallacies

    The big con has been that one should amass a fortune in their RRSPs so that they can retire in Bali or wherever. The "Freedom 55" syndrome.

    Consider that although people are living longer as a whole, lifespan is indeterminant for any specific individual. Also suppose that you max out your RRSP contributions throughout your working life and depending on your specific earnings accumulate $100k in your RRSP fund at age 65. You don't have to start drawing down any of the RRSP money until age 71, either through a RRIF or an annuity. If you die at say age 76 then whatever is left would go to your spouse without penalty. If you have no spouse then whatever is left will be deemed to have been cashed in on the year of your death and taxed at the appropriate rate for that year. Whatever is left(after taxes) can then be passed onto your beneficiaries.

    I just retired this spring at age 60 with a company pension. A couple of months after I packed it in I was informed that our pension plan had suffered great losses in the economic meltdown and my pension was reduced by 24%. I also opted to collapse my RRSP into a RRIF and begin drawing down my sheltered holdings which should take about 15 years. At this rate I should be able to filter this sheltered money back into an after-tax status at a preferred income tax rate.

    The bottom line is that using a RRSP to shelter your money during your working life is only advantageous if you can import it back to a non-taxable status afterwards before you expire. No one can predict what lies ahead with any certainty but why let the taxman be the benefactor of your prudence. Hopefully I will outlive my RRSP holdings, but if this year is any indication then everything is good. The cost of living does diminish after one leaves the rat race.

  • bpither1

    2 years ago

    Some good advice from the

    Some good advice from the above posters. Too bad most people are financially illiterate.

    I lived for 20 years outside of Canada and HAD to learn to look after myself. I have no RRSP and the last time I got a statement from CPP my payout was 8 bucks a month. So what to do?

    I read and read and studied some more. Every spare moment gave me some insight into how to SAVE and invest my own money. I learned that almost every decision you make in life is a calculated risk - whether it is marriage, a partnership or spending. It makes life more interesting because the responsibility falls back on you. Fortunately my wife lived a very frugal life while growing up in Hungary under terrible conditions. She knows how to handle money and looks in askance at other Canadians.

    I feel sorry for those who are mandated to hand their hard earned money over to someone else. While I think that CPP does not fall into this category as it has been well managed - and study the results before you comment - during the past 10 years (approx. investment board lifespan), other privately run pension schemes have not regarded their fiduciary duty in the same light. Don't trust a penny of what you earn with someone else, if you can avoid it, as they have their own interests at heart.

    On the other hand I do not feel sorry for those individuals who have frittered away a legacy or their income on frivolity. And many do in my opinion.

  • Jeffrey J.

    2 years ago

    Long Overdue

    Lifting the rock to look at the darkness of the highly corrupt 'financial services industry' is long overdue. It has been known for years that money is made when brokers 'churn' a clients account: buy, sell, buy, sell. Lots of fees for brokers, little return for the citizen. At the same time, we're all told to 'trust' our brokers; that they have our best interests at heart; they are working for us. I wish.

    North Americans have been defrauded for years and years in this pyramid scheme. And as this expose points out, the brokers are only the tip of the iceberg. Management fees are the real elephant in the room, where all the BIG money is made. It makes brokers look exactly what they are: an exploited group of desperate salespeople, gripped in a structure that forces them to keep ripping off their customers.

    The study of social structure revolutionized our understanding of how to make--or break--a just society. First made famous by philosophers in 1850 (Karl Marx being the most well known), this study was formalized by Emile Durkheim when 'sociology' was introduced as an academic discipline in 1900.

    We need to use these conceptual tools to understand how to improve society. Which is precisely why financial interests are so opposed to academic study. But they are in the minority. We are in the majority.

    Excellent, excellent article.

  • jwstewart

    2 years ago

    Time to tax pensions above a certain level

    Many in the public sector are benefitting from defined benefit pensions which cost well over 20% of the beneficiaries income to fund. Some govt pensions cost over 30% of income.

    Since it would be impossible to contirbute to RRSPs at a 30% level, why are govt employees receiving such benefits tax free?

    Pension contributions, whether real or notional, should be taxed if they exceed the equivalent RRSP maximum.

    Also, RRSP contriutions should be mandatory, not voluntary. Tax the first 20% of income at 100% if not contributed to a registered plan, or 0% if contributed.

    And if governments are keeping secret, reports that show citizens are being scammed, jail sounds too good, lets bring back capital punishment.

  • Van Isle

    2 years ago

    Looking at some of the

    Looking at some of the comments above it seems that it's the silly season again to bash civil servants. And these comments about "Gold Plated Pension"; the reason they're gold plated is because they're run properly, not like private ones, ie. Nortels ponsi pension plan. Don't forget that civil servents contribute to they're pension system too. Finally, please don't think for a moment that all civil sevants are making $100,000 plus a year. I was a tradesman in the civil service who barely made $50,000 a year; same trades people in the private sector made at least $70,000 a year. If I was willing to go to Fort McMoney I could have made $100,000. Why did I stay in the Civil service? Simple, it had a good pension plan.

  • Skywalker

    2 years ago

    Take Mark Twain's advice

    Buy land, they ain't making anymore" I wasted some money on RRSP's before the reality of the scam set in.

  • Illahie

    2 years ago

    Good article

    I think that it is true that the retirement of many are looking bleak.

    One of the problems that I see is that the sacred bond between borrowers and savers has been broken by lax government fiscal policy thanks to Alan Greenspan.

    This is causing a series of bubbles and busts, starting with the technology bubble, then realestate and now equities and short term treasuries.

    Lax fiscal policy has punished people who save and reward people who borrow.

    We are now in a serious debt crisis. It does not take long to get into debt, but it sure can take years to get out.

    The governments of the world have no incentive to normalize interests rates, and we will probably face bubbles and busts until rates normalize.

    Yet if interest rates go up, many mortgage and other debt holders will face punishing payments, perhaps for the rest of their lives.

    Without increased interest rates savers will face retirement with almost no return on their savings.

    I look forward to the next article

  • Bob Watts

    2 years ago

    Its a Dream

    20 years ago I told one of my tenants that there is no way in hell that 60% of the population can retire as millionaires. I told him to take his money out of the RRSP's and go buy a house. He could still live in the basement but rent the upstairs out to cover the payments, one year later he came to me and said the house went up $100k since then the house has gone up another $500k and its all tax free, plus he has no rent payments anymore and for the rest of his life.
    Gold should be going into freefall soon, back down to $250 history always repeats itself, but people always need food and shelter....

  • worldofplenty

    2 years ago

    I so agree with this article

    The whole Canada investment scheme is a big scam. It is all about getting your money locked up in an RRSP, TFSA or RESP or whatever in a big banks account so they have it and you don't. I have so many accounts now between myself and my wife and kids, chunks of money everywhere that it is almost impossible to manage. I am getting a little frustrated and would like to consolidate it all into one account for synergies such as larger trades and lower fees.

    We should get rid of all these plans and cut taxes to the bone so people can start to save their own money. Or eliminate the capital gains tax across the board to componsate for eliminating these plans.

    I thing having something public funded just makes things worse however, look at the cpp pyramid scheme and the tax dollar sunk into it.

  • Conductor274

    2 years ago

    retirement

    The best way to achieve a comfortable retirement is to be debt free. I retired at age 55 due to a work related back injury after 25 years on the job. I wasn't going to get a huge pension but I had been preparing for that moment for over 20 years. I started paying off my mortgage years ago and after buying and selling 4 houses I was mortgage free. I never ran up credit card debt and I never bought new vehicles so after the government taxed my income I wasn't giving some bank or car company more of my after tax dollars to service more debt. Now that I'm retired I don't have any monthly bills except for the usual utilities so I don't need a lot of money to live on each month. I even paid cash for my first new car. Now when I add in CPP to my small pension I live quite comfortably.

    Eliminate the so called financial experts and live within your means is my advise. Learn to manage your own money and stop being a total consumer who believes he/she must have every new gadget that comes on the market. Consumerism and debt are the enemies that'll drive you into the poor house.

  • soleprobe

    2 years ago

    Bob Watts "Gold... freefall soon, back down to $250

    Bob Watts, last October 23, about 6 weeks ago, you said it was “time for gold to drop” when it was around $1,055 an ounce after increasing about 50% from $700 the previous year.

    Now, about 6 weeks later, you’re saying the same thing and now gold is about $1200, a 13.7% increase in just 6 weeks.

    Do you place any value at all in such grossly failed predictions?

  • jwstewart

    2 years ago

    Van Isle

    You may contribute to your pension, but you aren't paying nearly the full cost of it. Neither is your employer.

    If it was fully funded through contributions, as opposed to being a current account liability on the governments books, then you wouldn't have a target on your pension.

    But you will find out that's it's no less a ponzi scheme as Nortels. If you think public sector pensions will survive while private sector pensions continue to vanish, good luck with that.

  • Bob Watts

    2 years ago

    Soleprobe

    Soleprobe. This is just a comment board and my prediction is gold will return to about the $250 level. When? Within one year, (maybe). Guess I’ve been alive awhile and have observed first hand what happens to prices of things like gold. My friend bought gold in the last precious medal “pig out” and lost big time. People are like sheep, we all follow the leader. Our collective herding instinct right now is saying buy gold. To me I like real estate and boy did it bounce back in a hurry. Next will be a turn around in the stock market and gold will be dumped in favor of the next money maker. Lots of people will make money on gold, but mostly it will be the private companies and brokers that will be the winners.

  • RickW

    2 years ago

    Fair Pensions

    Quote:
    I take exception to the comment that public sector workers have forsaken wages and others benefits in lieu of pensions. This is simply incorrect. They have gold-plated pensions paid for by taxpayers and receive higher compensation as well.

    Perhaps what public sector workers have is what the general public should have. The gist of the article certainly suggests that.

    After all, why spend one's "golden years" in penury?

  • frank2

    2 years ago

    Conductor is right! Spend

    Conductor is right! Spend less than you earn (with partial exception for mortgage on your house), and you'll be better off than if you try to make up for lost time when you wake up at 40 or so to the fact that work doesn't continue forever. Let's also recall that past levels of consumption will be unsustainable in the future. That said, governments should do more to reduce dependence on the financial parasites (banks, mutual funds, etc) -- but don't hold your breath.

  • soleprobe

    2 years ago

    "I’ve been alive awhile and have and have observed first hand

    what happens to prices of things like gold"

    Well Bob maybe you haven’t been alive long enough to understand that gold and silver over time hold their value.

    "Next will be a turn around in the stock market..."

    Bob, the stock market is valued in dollars (currency). Currency depreciates and with it so does the stock market. If the market goes up 5% and the currency is devalued by 5% due to inflation, your gains are an illusion.

    Likewise if your real estate goes up by 5% and the currency depreciates by 5% you have zero gains.

    Bob, the Big Players do not want your wealth in precious metals because then your wealth cannot be confiscated through inflation (a hidden tax) and exploding real estate bubbles.

    Without precious metals your wealth is exposed, vulnerable and at the mercy of the US Federal Reserve (a private bank that dictates monetary policy to the Bank of Canada for the benefit of its private banker shareholders and not for the benefit of Bob Watts). The Fed at any moment can prick the housing bubble by raising interest rates transferring hard assets (by default) into the hands of its shareholders (the private banks).

    The smart investor is diverting out of dollar denominated assets and buying precious metals and commodities.

    Anyways... for me it matters little because I have no wealth to protect (except for my guitars). :)

    Bob, since you’ve been so wrong in the last short while and your advice will prove financially devastating to anyone who takes it, let me recommend one of the sites I visit, an easy to digest youtube site, for real current information about what’s really going on. Your advice is the same lethal financial advice people are getting from mainstream media.

    http://www.youtube.com/user/visionvictory

  • Luck

    2 years ago

    CPP in Canada

    The Liberals had an opportunity in 1966 to make the CPP Canadas national pension plan.

    The Prime Minister of the day Lester B Pearson did suffer from the same fate as our politicians today.

    Our political leaders of every stripe suffers from lack of leadership skills, visionary planning, decision making and inadequate ability to represent the people of Canada without getting politically stupid.

    Have a look around at our leadership in the provinces across Canada and then look at our federal leadership landscape.

    30% of Canadians vote. I rest my case. Bring it on.

  • Fii

    2 years ago

    I was raised with the values

    I was raised with the values to stay out of debt (European mother who remembers WW2) and to save for a rainy day (father who never managed to but saw hope in me). Like posters above, once you have these two things covered I think you're half way there.

  • zalm

    2 years ago

    I can't speak for all public pensions....

    But the various public pensions in BC are fully funded by employees and employers without any makeup from the rest of the taxpayers or from general revenue, and have been for a dozen years.

    Prior to that, the pension funds themselves were used as "slush funds" for governments to borrow from at excessively favourable rates (such as for the Coquihalla completion, which borrowed $160 million from the various public funds such as Teachers, Municipal Employees and College Teachers at 5.7% in 1985 when interest rates were at 13%) which only helped the government and taxpayers at the expense of pensioners. Unfunded liabilities were accrued, but only at the posted rates of return for the funds, which were below market due to these givewaways. This led to all sorts of ripoffs, such as when $36 million was borrowed in 1990 for a public transit project, and the unfunded liability was recorded on the books at about 4%, which was the average rate of return of the funds at that time (including that giveaway rate). When it was pointed out (by no lesser than my father) that these funds could have purchased government of Ontario bonds at 7.5%, the pension fund trustee at the time rebutted by saying "Well, because the money's already been promised, there's nothing we can do. And the rules state that we can't give you any more for those funds than the average current rate of return."

    Brilliant. Force the pension fund to lend to the government's pet projects at below-market rates, then penalize the pension fund for not earning more than it did.

    All defined-benefit plans undergo actuarial reviews every three years by law - and have done for almost a dozen years. Any excess means a contribution holiday for both partners, any shortfall means both partners kick in. Current Municipal funds require employers to contribute 52.5% against 47.5% by employees (itself an allowance against short-term employees when the fund was first started up), while it's rather more for firefighters' employers, and exactly equal for College Teachers. The Joint Trust Agreements are available on-line for anyone to look at.

    And while cost-of-living is also similarly funded entirely by investment returns, benefits are not, with the result that most public-sector pensioners are entirely losing their benefits that they thought they would have, and in some cases, mistakenly gave up better-paying jobs in the private sector to maintain.

    It might have been better to go to work at Ford, which at one time contributed $3 for every $1 that the employees contributed. Some of the ire at public-sector pensions is quite misplaced, not to mention uninformed.

  • Bob Watts

    2 years ago

    The last gold rush in 1970 for soleprobe.

    The following actions also pushed gold prices to record levels 30 years ago. Will history repeat its self? It always does.
    Beginning in the early 1970s, Hunt and his brother William Herbert Hunt began accumulating large amounts of silver. By 1979, they had nearly cornered the global market.[6] In the last nine months of 1979, the brothers earned an estimated $2 billion to $4 billion in silver speculation, with estimated silver holdings of 100 million ounces.[7]

    During the Hunt brothers' accumulation of the precious metal, prices of silver futures contracts and silver bullion during 1979 and 1980 silver prices rose from $11 an ounce in September 1979 to $50 an ounce in January 1980. Silver prices ultimately collapsed to below $11 an ounce two months later. The largest single day drop in the price of silver occurred on Silver Thursday.[1]
    My family and I purchased 3 homes in a little community called IOCO outside of vancouver, we then listed all 3 houses at the same time for 100k each over what we paid. We cleaned a nice profit.
    I still believe you can't have 60% of the population retire as millionaires and expect your money to have any buying power. Everyone needs shelter and it is a stable an investment as you can get.
    PS: My small town has a 50% vancancy rate and could house 30% of the homeless in Vancouver, for a cost of 75% less than what a shelter gets paid right now.

  • soleprobe

    2 years ago

    "...during 1979 and 1980 silver prices rose..."

    Yes Bob, and also around that time January 1980 gold hit a record 850 US then plummeted down and remained steady in the 300-400 dollar range.

    But as you did 6 weeks ago, you’re using this onetime unusual occurrence that only lasted a couple of months. In January 1980 there was high inflation, strong oil prices, Soviet intervention in Afghanistan, the Iranian revolution all causing investors to buy precious metals. This onetime unusual occurrence can’t be used as an example of the volatility of precious metals over the long-term.

    Actually, the world is running out of gold:

    http://www.telegraph.co.uk/finance/newsbysector/industry/mining/6546579/Barrick-shuts-hedge-book-as-world-gold-supply-runs-out.html

    A friend of mine lasts year tried to buy gold and silver and couldn’t find any. He said Vancouver Gold Bullion & Currency Exchange had orders backed up for months and smaller dealers were charging too much. And yet, against the natural laws of supply and demand, the price of gold was still low. I don’t know currently about the availability of gold and silver because I’m too lazy to pick up the phone and find out.

    Many know that the price of gold is being suppressed through paper gold (gold futures) and the Central Bank’s leasing of gold:

    “By leasing, the physical gold leaves the vault to be sold in the open market but Central Banks replace the missing physical gold with an I.O.U - for accounting purposes – and claim that they still posses the same amount of physical bullion! So, by leasing gold instead of ‘outright sales,’ Central Banks can and do double count [cheat] – a la Enron – their gold stocks!:”

    http://www.marketskeptics.com/2009/01/gold-price-manipulation.html

    Anyway, with this current artificial Canadian housing bubble, which we all know exists, advising people to invest in real-estate at this time is lethal financial advice and may even be a little irresponsible. But hey, it’s not your wealth and in reality you may be just a fictitious username on a public board having a little fun.

  • Bob Watts

    2 years ago

    Having Fun?

    Yes I am having fun, thanks! You? Leased Gold, now that’s scary. There was a tech company a few years ago that did $3 million in sales, yet had $3 billion in outstanding shares. To me the prices of all things we buy or services we pay for are all make believe.
    I must admit I live a very good life, I rarely pay retail for anything. The easiest money you’ll ever make is the money you don’t spend, EG: I just bought a band new pair of $200 shoes with the tags on, for $3 . I have a 100 year old Danish oil painting above my desk, paid $15 at a estate sale, the Google value $4,500 and a very nice guitar for $10 retail about $800 etc etc. It’s a fun game.

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